San Diegans for Open Government v. Public Facilities Financing Authority of the City of San Diego

         [455 P.3d 312] [257 Cal.Rptr.3d 44] Fourth Appellate District, Division One, D069751, San Diego County Superior Court, 37-2015-00016536-CU-MC-CTL, Joan Marie Lewis, Judge.

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         COUNSEL

         Briggs Law Corporation, Cory J. Briggs, Anthony N. Kim, San Diego; Higgs Fletcher & Mack, John Morris and Rachel E. Moffitt, San Diego, for Plaintiff and Appellant.

         Mara W. Elliott, City Attorney, David J. Karlin and George F. Schaefer, Assistant City Attorneys, and Meghan Ashley Wharton, Deputy City Attorney, for Defendants and Respondents.

          OPINION

         Corrigan, J.

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         [455 P.3d 313] [257 Cal.Rptr.3d 45] A citizens’ taxpayer organization sued to invalidate certain contracts allegedly made in violation of Government Code section 1090. The question is whether Government Code section 1092 gives plaintiff the statutory standing to do so. We hold that section 1092^[1] does not provide plaintiff a private right of action because it was not a party to the contracts. The Court of Appeal’s judgment to the contrary is reversed. The matter is remanded for further proceedings.

          I. BACKGROUND

          Under section 1090, government officials and employees cannot be financially interested in any contract made by them in their official capacity or by any body of which they are a member. The statute codifies the long-standing common law rule prohibiting public officials from having personal financial interests in contracts they form in their official capacities. (Lexin v. Superior Court (2010) 47 Cal.4th 1050, 1072, 103 Cal.Rptr.3d 767, 222 P.3d 214.) Both the common law and section 1090 "recognize ‘[t]he truism that a person cannot serve two masters simultaneously.’ " (Lexin, at p. 1073, 103 Cal.Rptr.3d 767, 222 P.3d 214, quoting Thomson v. Call (1985) 38 Cal.3d 633, 637, 214 Cal.Rptr. 139, 699 P.2d 316 (Thomson ); see also San Diego v. S.D. & L. A. R. R. Co. (1872) 44 Cal. 106, 113.) Section 1090 has a broad reach, prohibiting both

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direct and indirect financial interests in public contracts. (See Moody v. Shuffleton (1928) 203 Cal. 100, 103-105, 262 P. 1095.) The penalty for a violation is substantial: The interested official must disgorge any profits earned, and may not recover any consideration paid, under the contract. (Thomson, at pp. 646-652, 214 Cal.Rptr. 139, 699 P.2d 316.)

         Section 1092 provides that any contract made in violation of section 1090 "may be avoided at the instance of any party except the officer interested therein." (§ 1092, subd. (a).) The dispute here revolves around the meaning of the phrase "any party." Some background will provide context.

         In 2007, the City of San Diego issued bonds to finance the construction of Petco Park. In 2015, the City sought to refinance the remaining debt on those bonds. It adopted an ordinance and its Public Facilities Financing Authority (PFFA) passed a resolution authorizing the issuance of new bonds to accomplish the refinancing.^[2] Shortly thereafter, San Diegans for Open Government (plaintiff) sued the City and PFFA (collectively, defendants), asserting that aspects of the refinancing transaction violated section 1090 because at least one member of the financing team, which included both city employees and private organizations, had a financial "interest in one or more contracts for the sale of the 2015 Bonds." Plaintiff claimed it was seeking relief "under Code of Civil Procedure Sections 860 et seq. and 1060 et seq." The complaint asserted a single cause of action, alleging that the bond issuance violated provisions of the California Constitution, the City’s charter and municipal code, and section 1090. Plaintiff sought a judgment declaring the bond transaction’s approval unlawful and an injunction prohibiting defendants from acting to further the bond issuance.

         [257 Cal.Rptr.3d 46] Plaintiff ultimately agreed to entry of judgment as to all allegations except the section 1090 violation. Defendants then argued that plaintiff lacked standing as to that issue, citing San Bernardino County v. Superior Court (2015) 239 Cal.App.4th 679, 190 Cal.Rptr.3d 876 (San Bernardino ). Plaintiff argued it had standing under section 1092 and Code of Civil Procedure section 526a.^[3] [455 P.3d 314] Plaintiff also mentioned it had timely filed its action under the validation statutes. (Code Civ. Proc., § 860 et seq.) The trial court ruled for

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defendants, concluding that section 1092 only confers standing on the parties to a challenged contract, and that plaintiff also lacked standing under Code of Civil Procedure section 526a. The remaining action was dismissed.

         Plaintiff appealed. In the Court of Appeal, the parties agreed that Code of Civil Procedure section 863 did not provide plaintiff an independent right of action to assert a section 1090 violation.^[4] As to whether plaintiff could proceed under Code of Civil Procedure section 526a, plaintiff argued that it could, while defendants argued subdivision (b) of that provision barred plaintiff’s claims for relief.^[5]

         The Court of Appeal held that the term "party" in section 1092 means "any litigant with an interest in the subject contract sufficient to support standing," and that plaintiff possessed such an interest. (San Diegans for Open Government v. Public Facilities Financing Authority of City of San Diego (2017) 16 Cal.App.5th 1273, 1284 (San Diegans ).) Because it found plaintiff could pursue its claim under section 1092, it did not decide whether plaintiff could proceed under Code of Civil Procedure section 526a. (San Diegans, at p. 1285, fn. 4.)

          II. DISCUSSION

          A. General Rules Regarding Standing and Causes of Action

          "Unlike the federal Constitution, our state Constitution has no case or controversy requirement imposing an independent jurisdictional limitation on our standing doctrine." (Weatherford, supra, 2 Cal.5th at pp. 1247-1248, 218 Cal.Rptr.3d 394, 395 P.3d 274.) Typically, to have standing, a plaintiff must plead an actual justiciable controversy and have some "special interest to be served or some particular right to be preserved or protected over and above the interest held in common with the public at large." (Carsten v. Psychology Examining Com. (1980) 27 Cal.3d 793, 796, 166 Cal.Rptr. 844, 614 P.2d 276.) This requirement has been relaxed in some contexts. For example, California [257 Cal.Rptr.3d 47] courts have consistently held that taxpayers have standing to prevent illegal conduct by public officials despite the lack of a special interest or right distinct from that belonging to the general public. (See e.g., Weatherford, at p. 1248, 218 Cal.Rptr.3d 394, 395 P.3d 274; Crowe v. Boyle (1920) 184 Cal. 117, 152, 193 P. 111; Mock v. City of Santa Rosa (1899) 126 Cal. 330, 345, 58 P. 826.)

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          Though standing requirements are construed more liberally in litigation enforcing public rights, a plaintiff suing under a particular statute still must show that it is among those with "a statutory right to relief." (Weatherford, supra, 2 Cal.5th at p. 1248.) Here, the question is whether plaintiff has a cause of action creating a right to relief under section 1092. "Whether a statute gives rise to a private right of action is a question of legislative intent." (County of San Diego v. State of California (2008) 164 Cal.App.4th 580, 609, 79 Cal.Rptr.3d 489; see also Boorstein v. CBS Interactive, Inc. (2013) 222 Cal.App.4th 456, 466, 165 Cal.Rptr.3d 669.) The intent may be express or implied (Lu v. Hawaii an Gardens Casino, Inc. (2010) 50 Cal.4th 592, 597, 113 Cal.Rptr.3d 498, 236 P.3d 346 (Lu )), but either way "the Legislature must clearly manifest an intent to create a private cause of action under [the] statute" [455 P.3d 315] (id. at p. 601, fn. 6, 113 Cal.Rptr.3d 498, 236 P.3d 346, citing Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 295, 250 Cal.Rptr. 116, 758 P.2d 58). The burden of persuasion is with the party claiming a statutory right to sue. (Lu, at p. 601, 113 Cal.Rptr.3d 498, 236 P.3d 346.)

          B. Plaintiff Cannot Sue Under Section 1092

         Section 1092 provides in relevant part that "[e]very contract made in violation of any of the provisions of Section 1090 may be avoided at the instance of any party except the officer interested therein." (§ 1092, subd. (a).) Defendants argue the phrase "any party" includes only parties to the challenged contract. Plaintiff argues the phrase applies more broadly to embrace other interested persons and organizations like itself.

         The Court of Appeal agreed with plaintiff. It reasoned that the "important policy embodied in section 1090 ... will not be vindicated if public officials believe section 1090’s substantive provisions may only be enforced by the very public officials or public entities who have violated the statute’s provisions." (San Diegans, supra, 16 Cal.App.5th at pp. 1283-1284.) "[A] public official’s duty to avoid even temptation cannot be advanced by adopting a rule which limits civil enforcement to that public official or public entities controlled by the official." (Id. at p. 1284.) The court also found that the "weight of authority" stood for the proposition that "standing to assert section 1090 claims goes beyond the parties to a public contract." (Ibid.)^[6]

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Based on "that authority and the important and strict policy embodied in section 1090," the court interpreted "section 1092’s reference to ‘any party’ to include any litigant with [257 Cal.Rptr.3d 48] an interest in the subject contract sufficient to support standing." (San Diegans, at p. 1284.) This would include, according to the court, parties with interests sufficient to support standing under Code of Civil Procedure sections 526a and 863. (San Diegans, at p. 1285.)

         We read the statute differently. "We begin with the text of the statute as the best indicator of legislative intent." (Tonya M. v. Superior Court (2007) 42 Cal.4th 836, 844, 69 Cal.Rptr.3d 96, 172 P.3d 402.) The statute refers to a "contract made in violation" of section 1090, then provides that any such contract "may be avoided by any party except the officer interested therein." (§ 1092, subd. (a).) The most natural reading of this language is that the phrase "any party" refers back to the contract; that is, any party to the contract can sue to avoid it. The use of the word avoid in section 1092 also supports this construction. Typically, we speak of a party to a contract avoiding its legal obligations thereunder. (See e.g., Rest.2d Contracts, § 7 ["[a] voidable contract is one where one or more parties have the power ... to avoid the legal relations created by the contract"].) Indeed, the Restatement Second of Contracts notes that "[a]voidance is often referred to as ‘disaffirmance.’ " (Rest.2d Contracts, § 7, com. b, p. 20.) A non-party does not possess the power to affirm or disaffirm a contract. (Ibid . ["[u]sually the power to avoid is confined to one party to the contract, but [under certain circumstances] the contract may be voidable by either one of the parties"].)

         This conclusion finds further support in provisions of the Civil Code governing the formation and interpretation of contracts. (See Smith v. Fair Employment & Housing Com. (1996) 12 Cal.4th 1143, 1156, 51 Cal.Rptr.2d 700, 913 P.2d 909');">913 P.2d 909 [reviewing the "Legislature’s use of the words ‘marital status’ " in the Family and Probate Codes to determine the meaning of that word in a Government Code provision]; see also Pesce v. Dept. Alcoholic Bev. Control (1958) 51 Cal.2d 310, 312, 333 P.2d 15; [455 P.3d 316] Picayune Rancheria of Chukchansi Indians v. Brown (2014) 229 Cal.App.4th 1416, 1428, 178 Cal.Rptr.3d 563.) Civil Code section 1559, for example, provides that a "contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind ...